Establishing a competitive advantage in today’s retail marketplace is predicated to a degree on a retailer’s ability to convert its resources into usable capabilities (referred to as dynamic capabilities).  A distinction is normally made between resources and capabilities, in that, resources are stocks of available factors that are owned or controlled by a retailer and capabilities are a retailer’s capacity to deploy resources. When capabilities are developed, the retailer is able to achieve performance gains. Despite the interest in the development of dynamic capabilities among retail practitioners and academics, there is a need to improve our understanding of the factors influencing the development of resources (most notably knowledge resources) and their conversion into dynamic capabilities.

This paper attempts to shed light on the issue of resource development and conversion by examining the influence of the management orientation of entrepreneurial proclivity, where entrepreneurial proclivity is defined as the organization’s predisposition to be innovative, proactive, autonomous and competitively aggressive. Since smaller retailers are believed to be more entrepreneurial than larger retailers, we examined the influence of this orientation style in smaller retailers (i.e., firms that have a median of 15 employees, $1.0 million in annual sales revenue, 17 years in operation and 1 location). Our research questions focused on: (1) what is the influence of the management orientation of entrepreneurial proclivity on the accumulation of knowledge resources; (2) do these knowledge resources help a retailer respond to the market more efficiently and quickly and; (3) does this management orientation aid in the conversion of these resources in capabilities.

First, we found that the management orientation of entrepreneurial proclivity provides a driving force for the development of knowledge resources in the retailer. For example, the results demonstrate that the greater the entrepreneurial proclivity of a retailer the greater amount of knowledge the retailer develops pertaining to customers, competitors, suppliers and regulatory agencies. As knowledge resources are a key competitive advantage in a competitive retail environment, the management orientation of entrepreneurial proclivity can be viewed as an approach that small retailers could employ to drive the development of key knowledge resources.

Further, our findings indicate that the four knowledge resources directly relate to the dynamic capability of market responsiveness, albeit each resource has a different influence on the dynamic capability. For example, retailers’ knowledge of customers had more impact on their market responsiveness than knowledge of competitors, suppliers, and regulatory agencies; whereas knowledge of competitors and suppliers appeared to be more useful than knowledge of regulatory agencies.  However, if a retailer is smaller and has an entrepreneurial environment then they can leverage their knowledge of suppliers, in such a way, as to develop dynamic capabilities which increase their market responsiveness.  In other words, a retailer’s knowledge of its suppliers (e.g., breadth of product offerings, pricing of products, existing and potential suppliers, etc.) allows it to become more proactive and competitively aggressive in the marketplace thereby responding to market needs more quickly than firms with similar knowledge resources but lacking high levels of entrepreneurial proclivity.  As such, it is not fair to say that knowledge of suppliers is less important than knowledge of customers or competitors, but rather the influence of this type of knowledge depends on the entrepreneurial environment of the retailer.    

With regard to a retailers’ knowledge of regulatory agencies, we found that an entrepreneurial management orientation actually decreases the impact of this type of knowledge structure on market responsiveness.  Retailers high in entrepreneurial proclivity are by their very nature innovative and proactive, however greater knowledge of the regulatory agencies and their policies, places constraints upon the retailers to effectively innovate and operate proactively within the market.  As such, entrepreneurial retailers do not seem to get enhance performance by investing their knowledge resources in regulatory agencies.  Instead this same entrepreneurial management orientation that drives retailers to develop knowledge related to this domain also decreases their ability to convert this knowledge resource into the dynamic capability of market responsiveness. As such, our findings highlight both the positive and negative impact of an entrepreneurial management orientation.